Ericsson Eyes Sales From Mobile Industry’s Top Patents Trove

By Diana ben-Aaron -
Nov 9, 2011

Ericsson AB, the world’s largest
maker of mobile-phone networks, aims to increase revenue from
its more than 27,000 patents as devices from toys to energy
meters get wireless access, its chief executive officer said.

“By 2015 two thirds of all consumer electronics devices
will have some sort of connectivity,” Hans Vestberg said in an
interview at the company’s headquarters in Stockholm. “Any
company or manufacturer that wants to get in there will need
an agreement with Ericsson.”

Ericsson, which helped develop the global system for mobile
communications that enables handsets to latch onto networks from
London to Jakarta, holds the industry’s largest portfolio of
wireless communication patents. Generating more revenue from
rights would help smooth out fluctuations in network orders.

The intellectual property covers “basically everything in
the telecom industry,” including the world’s largest collection
of WiFi patents, Vestberg said. Revenue from patents more than
doubled to 4.6 billion kronor ($704 million) last year from 2
billion kronor in 2006.

“If we are going to get 50 billion connected devices in
2020 it’s not only going to be handsets,” Vestberg said
yesterday. “It’s not going to be practical for us to make
bilateral negotiations with all the manufacturers. We need new
business models and we need to work in groups.”

Bilateral Agreements

Connected devices may include shipping containers that
transmit their position and interior temperature, as well as
appliances that are hooked into a network, Vestberg said.
Heating systems, health monitors and automobile traffic
management are among the applications that are already being
seeded with sensors and wireless transmitters.

Ericsson plans to get royalties from intellectual property
in areas it hasn’t monetized before, such as Web search and
optical transmissions, Vestberg said.

Ericsson has relied on bilateral agreements and industry
standards consortia to establish cross-licensing and fair
royalty rates among handset and infrastructure vendors. Going
through chipmakers may be the most efficient way to secure
royalties from a broader range of products, Vestberg said.

In July, Ericsson joined a group of companies including
Apple Inc. (AAPL), Microsoft Corp. and Sony Corp. to buy more than
6,000 patents from Nortel Networks Corp. for $4.5 billion. The
transaction was important for Ericsson because it didn’t have a
deal covering those patents, Vestberg said.

$15.5 Billion?

A month later, Google Inc. (GOOG) agreed to buy Motorola Mobility
Holdings Inc. for $12.5 billion, gaining mobile patents and
expanding in the hardware business. Helena Nordman-Knutson, a
Stockholm-based analyst at Pareto Oehman, estimates that
Ericsson’s patents could be valued at as much as $15.5 billion,
based on the price Google paid for Motorola’s intellectual
property.

Before today, Ericsson had fallen 10 percent this year in
Stockholm trading. Paris-based Alcatel-Lucent SA has slumped
30 percent on the Paris exchange, while Cisco Systems Inc. (CSCO) has
dropped 9.5 percent in the U.S.

Ericsson fell 3.6 percent to 67.45 euros at 11:22 a.m. in
Stockholm. The company told investors today that operators may
be more cautious on short-term spending, repeating comments it
made last month.

Founded by L.M. Ericsson in 1876 to repair telegraph
equipment, Ericsson already has more than 90 licensing deals for
its core technologies with handset companies and infrastructure
producers, Vestberg said. The company was a founding member of
3GPP which shares intellectual property for the wireless
industry, making sure that licensing fees for necessary patents
are fair and reasonable.

‘Sit On Them’

Ericsson, which sold its first telephone in 1878, last
month agreed to divest its stake in its handset venture Sony
Ericsson Mobile Communications AB to partner Sony. The sale will
permit Ericsson to concentrate on selling infrastructure gear as
well as network and customer management services to phone
companies and others.

As part of that deal, Sony will pay 1.05 billion euros in
cash, and will get cross-licensing of Ericsson intellectual
property and ownership of five essential patent families, the
companies said on Oct. 27.

The patents being transferred to Sony are peripheral to
Ericsson’s portfolio and are an example of “selective” sales
of intellectual property it doesn’t need, Vestberg said. The
company also sold some patents in 2008, but that is not the
usual pattern, he added.

“We are not into selling patents,” he said. “We want to
get the recurrent revenue and we want to sit on them.”